Rule 289 of the Income-tax Rules, 2026

Where this rule sits

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What this rule does

Sub-rule (1) requires an electoral trust referred to in Schedule VIII [Table: Sl. No. 2] to function in accordance with this rule.

Sub-rules (2) to (6) govern what may be taken in. The trust may receive voluntary contributions from an individual who is a citizen of India, a company registered in India, or a firm, Hindu undivided family, association of persons or body of individuals resident in India. It must accept contributions only by account payee cheque, account payee bank draft or electronic transfer to its bank account, and must not accept any contribution in cash. It must not accept a contribution without the Permanent Account Number of a contributor who is a resident, or the passport number of a citizen of India who is not a resident. On receipt of any contribution it must immediately issue a receipt showing the contributor's name and address, his Permanent Account Number or passport number, the amount and mode of contribution including the bank name and branch and the date of receipt, the name and Permanent Account Number of the trust, the date and number of the approval by the prescribed authority, and the name and designation of the person issuing the receipt. It must not accept contributions from an individual who is not a citizen of India or any foreign entity whether incorporated or not, from another electoral trust registered as a company under section 8 of the Companies Act, 2013 and approved under the Electoral Trusts Scheme, 2013, from a Government Company as defined in section 2(45) of that Act, or from a foreign source as defined in section 2(j) of the Foreign Contribution (Regulation) Act, 2010.

Sub-rules (7) and (8) govern what goes out. Only a political party registered under section 29A of the Representation of the People Act, 1951 is an eligible political party, and the trust may distribute funds only to eligible political parties. For managing its affairs the trust may spend up to 5% of the total contributions received in a year, subject to an aggregate limit of Rs. 500000 in the first year of incorporation and Rs. 300000 in subsequent years. The distributable contributions for a tax year are the total contributions received in that year together with any surplus from an earlier tax year, reduced by the amount spent on managing its affairs. The trust must distribute those distributable contributions to eligible political parties before the 31st March of that tax year, subject to the condition that at least 95% of the total contributions received during the tax year together with any surplus brought forward is distributed.

Sub-rule (9) requires the trust to obtain a receipt from the eligible political party showing the party's name, Permanent Account Number, registration number, the amount received, the date of receipt and the name and designation of the person signing.

Sub-rule (10) bars the trust from using any contribution for the direct or indirect benefit of its members, including members of its Executive Committee, Governing Committee or Board of Directors, their relatives, a member of a contributing Hindu undivided family, any person who has contributed to the trust, any person referred to in section 355(h), or any concern in which such a person has a substantial interest.

Sub-rules (11) to (13), (15) and (16) govern the record. The trust must keep books of account and other documents enabling computation of its total income under the Act, and maintain a list of persons from whom contributions were received and to whom they were distributed, with each person's name, address and Permanent Account Number and the amount and mode of payment including bank name and branch. It must get its accounts audited by an accountant as defined in section 515(3)(b) and furnish the audit report in Form No. 181 with its Annexure particulars to the Director General of Income Tax (Systems) on or before the due date for furnishing the return under section 263(1)(c), electronically under digital signature where the return itself must be so signed and otherwise through electronic verification code. It must keep a regular record of proceedings of all meetings and decisions, and must furnish every tax year a certified copy of the list of contributors and the list of political parties to whom sums were distributed, to the Director General of Income Tax (Systems), along with the audit report.

Sub-rule (17) requires any change in the shareholders subsequent to the approval granted under the Electoral Trusts Scheme, 2013 to be intimated to the Board within thirty days of the change.

The sub-rules run from (1) to (13) and then from (15) to (17); there is no sub-rule (14) in the published text.

Why it is there

An electoral trust exists to stand between a contributor and a political party, and the exemption it enjoys is worth only as much as the conditions attached to it. The rule makes the money traceable at both ends — no cash in, an identified contributor, a receipt on the way in and a receipt on the way out — caps what the trust may keep for itself, and forces almost everything received out to registered parties within the same year, so the vehicle cannot become a store of undistributed political funds.

Who it applies to

• An electoral trust referred to in Schedule VIII [Table: Sl. No. 2]
• Contributors to the trust — Indian citizens, companies registered in India, and resident firms, Hindu undivided families, associations of persons and bodies of individuals
• Political parties registered under section 29A of the Representation of the People Act, 1951, as recipients
• Members of the trust's Executive Committee, Governing Committee or Board of Directors, and their relatives, who are barred from benefit
• An accountant as defined in section 515(3)(b) auditing the trust

The figures, and what each one turns on

The forms it prescribes

• Form No. 181 — audit report of an electoral trust, with the particulars forming part of its Annexure

What this means in practice

The 5% in sub-rule (8)(a) is not a spending entitlement — it is the lower of two constraints, because the money limits of Rs. 500000 in the first year and Rs. 300000 afterwards cap the percentage. A trust receiving Rs 20 crore may compute 5% as Rs 1 crore but may still spend only Rs 3,00,000 in a subsequent year. The 95% test and the distributable contributions figure in clause (b) are measured differently and both must be satisfied: distributable contributions are receipts plus brought-forward surplus less management spending, while the 95% is measured on the total contributions received plus the surplus, without that reduction. The deadline is 31st March of the same tax year, so a contribution received late in the year still has to go out in that year. On the receipt side the prohibitions are absolute and self-executing — no cash at all, and no contribution accepted without the contributor's Permanent Account Number or, for a non-resident Indian citizen, passport number, so a contribution that cannot be identified simply cannot be taken. Note that another electoral trust is a barred contributor where it is a section 8 company approved under the Electoral Trusts Scheme, 2013, and that the benefit prohibition in sub-rule (10) reaches contributors themselves, not only the trust's own members.

An example

An electoral trust in its third year receives Rs 6 crore of contributions, all by electronic transfer, and issues each contributor a receipt with the required particulars on the day of receipt. It carries forward no surplus. Five per cent of Rs 6 crore is Rs 30,00,000, but sub-rule (8)(a) caps the management spend at Rs 3,00,000 for a subsequent year, so distributable contributions are Rs 5,97,00,000. The 95% test requires at least Rs 5,70,00,000 of the Rs 6 crore to be distributed to parties registered under section 29A before 31st March of that tax year. The trust obtains a receipt from each recipient party showing its Permanent Account Number and registration number, and files Form No. 181 with the audit report by the section 263(1)(c) due date.

Where you meet this rule

A contributor meets it as the receipt the trust issues and the demand for a Permanent Account Number or passport number before a contribution is taken. The trust meets it continuously — in its banking, its March distribution deadline, its Form No. 181 audit report, and its thirty-day intimation of any shareholder change to the Board.

The words themselves

What people get wrong

• Treating 5% as the management spending limit. Sub-rule (8)(a) subjects it to aggregate limits of Rs. 500000 in the first year of incorporation and Rs. 300000 in subsequent years.
• Measuring the 95% on distributable contributions. Sub-rule (8)(c) measures it on the total contributions received during the tax year along with the surplus brought forward.
• Distributing after the year end. Sub-rule (8)(c) requires distribution before the 31st March of the tax year.
• Accepting a small contribution in cash. Sub-rule (3) permits only account payee cheque, account payee bank draft or electronic transfer, and bars cash outright.
• Taking a contribution without identification. Sub-rule (4) bars acceptance without the Permanent Account Number of a resident contributor or the passport number of a non-resident citizen of India.
• Distributing to an unregistered party. Sub-rule (7) makes only a party registered under section 29A of the Representation of the People Act, 1951 an eligible political party.
• Reading the benefit bar as covering only trustees and members. Sub-rule (10) also covers any person who has contributed to the trust, persons referred to in section 355(h), and any concern in which such persons have a substantial interest.